Annual Financial Report

RNS Number : 4589B

Impax Environmental Markets PLC

03 April 2013

 



IMPAX ENVIRONMENTAL MARKETS PLC

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

HIGHLIGHTS OF THE YEAR

·    Company outperformed environmental index (FTSE ET50) during year 

·    Company underperformed global markets for the full year but outperformed in H2

·    Favourable macro and policy developments and improving environmental sector fundamentals

·    Company continued buyback programme with purchase of 23.9 million Ordinary Shares

·    Multiple positive catalysts for continued performance

FINANCIAL INFORMATION SUMMARY

	At 31		At 31
	December		December		%
	2012		2011		change
Net assets	£341.2m		£344.8m		-1.0%
Number of Ordinary Shares in issue1	270,770,748		294,734,070		-8.1%
Net asset value ("NAV") per Ordinary Share	126.0p		117.0p		7.7%
NAV per Ordinary Share
(excluding current year net revenue)	125.0p		115.9p		7.9%
MSCI World Index2					8.2%
MSCI World Small Cap Index2					10.5%
FTSE ET50 Index2					-0.1%
Ordinary Share price (mid-market)	102.9p		95.8p		7.4%
Ordinary Share price discount to NAV3	18.3%		18.1%		n/a

¹  Excluding shares held in Treasury

²  Capital return in pounds sterling

³  Calculated using NAV per Ordinary Share including current year net revenue

CHAIRMAN'S STATEMENT

The long term case for investing in environmental markets remains strong and we are regularly reminded of the pressures on our environment.  Despite this, investor interest in environmental stocks has waned over the past few years in the face of difficult economic conditions. The consequence of this lack of attention has been that shares of environmental companies, which are best measured by the FTSE ET50 Index, have lagged the performance of the more broadly based indices such as MSCI Word Index and MSCI World Small Cap Index.  Not surprisingly, Impax Environmental Markets ("IEM" or the "Company") has also underperformed these global indices.  However, over the second half of the year under review, there have been the first signs that investor confidence is finally starting to return to this sector and IEM has outperformed both the FTSE ET50 and the broader MSCI global indices.

Market Developments

The past 12 months have provided several clear reminders of the importance of our relationship with the environment and the validity of the Company's investment hypothesis. In October, Hurricane Sandy devastated parts of the Mid-Atlantic and North Eastern United States, causing damage estimated at over USD 70 billion, while the prolonged period of winter flooding in the UK has highlighted the need for investment in solutions to minimise the future impact of extreme weather events.  Over recent months air pollution in Beijing and other major Chinese cities has reached record levels.

There has been an increasing recognition by world leaders during 2012 of the need for action on the environment.  Following his re-election, President Obama reiterated his commitment to building a greener economy, with notable statements on climate change and further encouragement for the adoption of renewable energy.  Several environmental markets, notably those linked to construction and infrastructure spending and to industrial capital expenditure, have benefited from improving economic data in the United States.  In China, a smooth leadership transition has led to expectations of increased commitments within the existing five year plan, as a result of which levels of expenditure on environmental projects are expected to accelerate.

Investment Performance       

In the half yearly report and accounts, I reported that the Company's net asset value ("NAV") per Ordinary Share had outperformed the FTSE ET50, but underperformed global indices such as the MSCI World Index and the MSCI World Small Cap Index.  During the second half, IEM's NAV outperformed global indices as well as the FTSE ET50 Index.

For the 12 months ended 31 December 2012, the Company's NAV per share increased from 116p to 125p, a rise of 7.9%, while the FTSE ET50 Index fell by 0.1% and the MSCI World Index and the MSCI World Small Cap Index (capital returns in pounds sterling) rose 8.2% and 10.5% respectively.  During the year, IEM's share price rose to 102.9p from 95.8p, an increase of 7.4%.

Discount

During the year, the discount to NAV at which the Company's Ordinary Shares traded ranged between 14% and 23%, with an average for the year of 19%.  Improving performance together with ongoing buy-back activity saw the discount narrow a little, but it closed the year at 18%.

The Board has continued to take proactive steps to control the discount.  During the year the Company has bought back 23,963,322 of its own Ordinary Shares at an average discount to NAV of 20%.  The buybacks during the year have enhanced the NAV per Ordinary Shares by approximately 2.1p. At 31 December 2012 the Company had a total of 53,738,625 Ordinary Shares held in treasury, equating to 20% of the Ordinary Shares in issue. 

Since the year end, a further 10,882,000 Ordinary Shares have been bought back.  The level of the discount continues to be a matter of concern to the Board and, despite the buy-backs, it remains at 15%, stubbornly above the level at which we believe the shares should trade. We will therefore continue with our buy back-policy and will be seeking a renewal of our authority to do so at the forthcoming Annual General Meeting ("AGM").

Dividend

The Company's net revenue for the year was £2.6 million, equivalent to 0.9p per share. As a result, the directors are recommending an unchanged dividend for the year ended 31 December 2012 of 0.9p per share (2011: 0.9p).  If approved at the Company's AGM this dividend will be paid on 28 May 2013 to shareholders on the register as at the close of business on 26 April 2013.  As the primary objective of the Company is capital growth, it should not be assumed that this level of dividend will be paid in future years.

Board of Directors

The Board has continued to plan for Board succession in line with best practice in corporate governance.  On 7 February 2013, we announced the appointment of John Scott as a director. John is a former investment banker and has been chairman and non-executive director of several investment trusts.  It is the Board's intention that John will assume the role of Chairman after the Company's AGM in May 2014, when I intend to retire.

Keith Niven and Charles Berry will retire by rotation at the 2013 AGM and will not stand for re-election.  The Board would like to thank both Keith and Charles for the valuable insights they have provided to the Company. 

Continuation Vote

In accordance with the Articles of Association of the Company, an Ordinary Resolution that the Company continues as an investment trust for a further three year period will be proposed at the forthcoming AGM.   The Board continues to believe that IEM offers an attractive opportunity for investors to obtain exposure to environmental markets and recommends that shareholders vote in favour of the resolution.

Amendment to Articles of Association - Dividends

Following changes to the investment trust rules, the Company is no longer required to have a provision in its articles prohibiting the distribution by way of dividend of profits made on the disposal of investments. Accordingly, the Company is putting forward a special resolution at the AGM to remove the prohibition. The directors, however, do not currently intend to declare any dividends in respect of such capital profits.

Outlook

The Company has had a good start to 2013.  As at 28 March 2013, the NAV had risen 16.2% since the year end, while the share price had risen by 20.3%.  The MSCI World, MSCI World Small Cap and FTSE ET50 indices (capital return in pounds sterling) had risen 14.7%, 17.7% and 14.5% over the same period. 

The Board believes that, despite their recent rise, equities represent an attractive investment in comparison to cash and bonds.  Sentiment towards environmental markets continues to improve, and Q4 2012 earnings reports and outlook statements from IEM's investee companies have generally been in line with or ahead of expectations.  We are therefore positive about the prospects for the Company in the current year and for the future.

Richard Bernays

3 April 2013

MANAGER'S REPORT

Despite considerable challenges during the year, including relatively high levels of market volatility, we are pleased by the Company's robust performance in the second half.  The issues linked to finite natural resources and inadequate infrastructure continue to build, driving demand worldwide for cleaner, more efficient products and services.  We are encouraged by the increasing number and breadth of investment opportunities arising from technology innovation, regulations and corporate activity across environmental markets.

Key Developments and Drivers of Environmental Markets

In 2012, following several years of negative or low growth in developed markets, we began to see numerous signs of rising demand across many of the sectors in which the Company is investing.

Water

The continuing favourable outlook for both the building industry and municipal spending, particularly in the United States, continues to provide a strong positive stimulus for the water sector.  Spending and margins have proved resilient as developed countries replace old infrastructure, while in developing markets urbanisation is creating demand for new water supply and sanitation systems.    

Water was one of the Company's best performing sectors during the year, and companies manufacturing pumps, valves and related equipment generally delivered good results as their markets grew.  Further strict global regulations around water quality are also expected to be positive for investment, and we are confident that these drivers will be maintained in the longer term. 

In particular, demand for water-related goods and services to support the extraction of shale gas has continued to expand rapidly.  Hydraulic fracturing ("fracking") is highly dependent on both the availability of a plentiful supply of water and effective processes to remove water-borne chemicals post fracking; we have identified several attractive investment opportunities that should benefit from the combination of strong demand growth and tighter environmental regulation.  Franklin Electric (US), a supplier of pumps to the shale gas and water sectors, was added to the portfolio during 2012.

Energy Efficiency

Despite strong growth of this subsector of 24% in 2012, holdings exposed to light emitting diode ("LED") markets underperformed in 2012, driven by short term overcapacity of supply and attendant price and margin pressures.  However, we remain positive on the outlook for this sector.  Policy developments are supportive, with Japan targeting 50% LED penetration of the general lighting market during 2013 and China outlining plans to reach 20% by 2015.  In addition, technology costs are falling by approximately 30% a year, creating compelling paybacks for industrial end users of less than one year, and leading to availability of 60 Watt replacement bulbs for residential markets for less than US$10.  Phillips, one of the leading manufacturers of LEDs, expects these trends to drive rapid acceleration of global LED lighting market penetration from 8% in 2012 to 45% in 2015, to reach a market of €75-80bn per annum.  We added Aixtron (LED machinery, Germany) during the year in anticipation of a new capex cycle in this sector.

Metal Recycling

Metal recycling markets in the United States have been depressed for several years but are now starting to exhibit signs of a return to growth.  As sales volumes of new passenger cars in the United States pick up, the number of scrapped vehicles is also rising, improving the availability of supply of material for recyclers.  Demand for scrap is also improving, driven by a healthy outlook for growth in China and accelerating infrastructure investment in the region.  With the share prices for scrap metal recyclers remaining near multi-year lows, we believe that the subsector is at a turning point and a particularly interesting investment proposition. With this in mind, we added Schnitzer Steel (US) to the portfolio during the year.

Policy and Regulation - US and Europe

2012 saw further tightening of environmental policy globally, resulting in several major positive developments that will have numerous positive impacts.  In the United States, the Environment Protection Agency ("EPA") passed an historic fuel efficiency standard for new vehicles of 54.5 miles per US gallon by 2025 (measured across a manufacturer's "fleet").  The European Union's Energy Efficiency Directive, which was ratified in October 2012, requires that the 27 Member States must legislate to ensure that, by 2014, their national energy companies implement energy efficiency measures leading to at least a 1.5% reduction in annual energy use for all customers, and the public sector in each country is also required to renovate 3% of buildings "owned and occupied" by central government each year.

Policy and Regulation - Asia Pacific

As part of its new energy policy developed after the Fukushima nuclear accident in 2011, the Japanese government launched a generous renewable energy feed-in tariff, and is considering phasing out all nuclear generation by the 2030s.  It also looks set to make green economy investments of up to US$1.6 trillion over the next 20 years.  The transition to a new Chinese leadership has been encouraging for national environmental markets, and the implementation of the 12th five year plan (which runs to the end of 2015) must accelerate if ambitious environmental targets and revised renewables targets are to be met.

Performance Contributors and Detractors

Contributors

Water infrastructure stocks continued to perform strongly, driven in particular by the increasing momentum of the construction recovery in the United States and a more positive outlook on municipal spending in the water space.  Badger Meter, Watts Water and Franklin Electric (all US) contributed positively to performance.

The energy efficiency subsector performed well overall, reflecting the continuing tightening of standards, the recovery of industrial and construction markets and strong earnings delivery by portfolio holdings.  Performance was strong in industrial energy efficiency, reflecting attractive commercial propositions and industrial end customers' appetite to reduce operating costs.   Regal Beloit (US), Vacon (Finland) and Spirax Sarco (UK) were all material contributors.

Mergers and acquisitions contributed significantly to performance, and last year we witnessed an upsurge of activity across our markets.  Unlike previous years, in which the contribution came from portfolio holdings being acquired, in 2012 it resulted from holdings using their strong balance sheets to make substantial and strategic acquisitions.  These acquisitions were substantially earnings accretive and this consolidation across all geographies is leading to larger well-managed and attractive companies.   Pentair (water infrastructure, US), Kingspan (insulation, Ireland), and Clean Harbors (hazardous waste, US) all contributed on this basis.

IEM has a number of micro-cap holdings (defined as companies with market capitalisations of less than £100 million), which differentiates the Company from most of its peers.  These also contributed materially to performance in 2012.  Regenesis (electronic goods repair and recycling, UK) completed its turnaround and accelerated growth organically and via acquisition.  Porvair (filtration, UK) also delivered strongly on earnings growth, achieving multiple earnings upgrades during the year.

Detractors

The renewable energy subsector was the principal detractor from performance during 2012.  The Company maintained a significant underweight position compared to the FTSE ET50 but this subsector still subtracted approximately 3% from IEM's absolute performance.   Weakness was broadly spread across wind and solar original equipment manufacturers ("OEMs") and independent power producers ("IPPs").  Regulatory uncertainty was partly to blame, with the Spanish Government following through on threats to implement retroactive cuts to subsidies for existing projects, impacting EDP Renovaveis and Abengoa (both renewable energy IPPs).  In addition, significant overcapacity in wind and solar markets led to pricing and margin pressure, deteriorating balance sheets and weakness in Trina Solar and 5 N Plus (both solar OEMs) and in Vestas (wind turbine manufacturer, Denmark).  While we remain cautious on renewables in the near term, we retain our positive long term view.  This reflects a changing global energy mix towards gas (which is complementary to renewables), falling technology costs that are opening up new and unsubsidised markets, and early signs of consolidation of overcapacity.

The LED market was weak due to short term overcapacity, impacting in particular Epistar (Taiwan) and Aixtron (Germany).  Asian markets lagged overall, despite producing the single best contributor to performance in Lee & Man (value added waste processor, China).  The unlisted holdings suffered write-downs and are discussed below.

Portfolio Activity and Current Structure

The portfolio remains well diversified by both subsector and geography.  At the year end the Company had 73 listed or quoted holdings and 5 investments in unquoted companies, reflecting a balance of defensive and cyclical investments.  We continue to focus on companies with reasonable valuations, attractive business models, proven management teams, strong balance sheets and high returns on equity.  We maintain our positive bias towards energy efficiency, water infrastructure and pollution control and low absolute and relative weightings in renewables.

Unquoted companies

At 31 December 2012, the value of the Company's investments in unquoted companies was £11.5m, representing 3.2% of the portfolio.  Movements in the year were as follows:

	£m
Valuation at 1 January 2012	14.2
Additional investments net of recoveries	0.0
Net valuation and FX changes	(2.7)
Valuation at 31 December 2012	11.5

During the year, a valuation uplift of £1.1m on one holding was offset by downgrades in three other holdings totalling in aggregate £3.8m to give a net valuation and FX loss of £2.7m.

Ensyn made strong progress and, in a fourth quarter private placement, raised US$28 million to develop new production plants.  Also in the fourth quarter, we exited New Earth Solutions through an in specie transaction with New Earth Recycling and Renewables (Infrastructure) plc, a specialist fund investing across the full range of New Earth activities and giving us a clearer pathway to future liquidity.

Outlook for 2013

Although equity markets are likely to remain volatile, we are optimistic on the outlook for global equities in general and the Company in particular.  We see several strong catalysts for continued performance.  From a macro-economic perspective, accelerating infrastructure investment in China and a recovery of US construction markets are favourable.  Looking at the micro developments in environmental markets, we see improving fundamentals in multiple subsectors.  With a high quality and well balanced portfolio of holdings, we believe the Company is well positioned to perform in the coming years.

Impax Asset Management Limited

3 April 2013

PRINCIPAL RISKS AND UNCERTAINTIES

The Board considers that the principal risks and uncertainties faced by the Company fall into the following main categories.

(i)    Market risks

Price movements of the Company's investments are highly correlated to performance of global equities in general and small and mid-cap equities in particular. Consequently falls in stock markets are likely to negatively affect the performance of the Company's investments.

The Company invests in companies with small market capitalisations, which are likely to be subject to higher valuation uncertainties and liquidity risks than larger capitalisation securities. The Company also invests in unquoted securities which generally have higher valuation uncertainties and liquidity risks than securities listed or traded on a regulated market.

The Company invests in securities which are not denominated or quoted in sterling. Movements of exchange rates between sterling and other currencies in which the Company's investments are denominated may have an unfavourable effect on the return on the investments made by the Company.

There are inherent risks involved in stock selection. The Manager is experienced and employs its expertise in selecting the stocks in which the Company invests. The Manager spreads the investment risk over a wide portfolio of investments in three main sectors and at the year end the Company held investments in 73 quoted companies plus 5 unquoted companies. The Company will not normally hedge against foreign currency movements affecting the value of its investments, but the Manager takes account of this risk when making investment decisions.

(ii)   Environmental Markets

The Company invests in companies in Environmental Markets. Such companies carry risks that government liberalisation may not occur as expected, costs of technology may not fall, capital spending by their customers is reduced or deferred and their products or services are not adopted.

(iii)  Corporate governance and internal control risks

The main risk areas are poor allocation of the Company's assets by the Manager, poor governance by the Board and poor compliance or administration including the loss of investment trust status which may lead to the Company being subject to tax on any gains on the disposal of its investments. These factors could potentially result in unacceptable returns for shareholders.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable laws and regulations.

Company law requires the directors to prepare accounts for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the directors are required to:

●     select suitable accounting policies and then apply them consistently;

●     make judgements and estimates which are reasonable and prudent; and

●     state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The accounts are published on the www.impaxam.com website which is maintained by the Company's Manager, Impax Asset Management Limited ("IAM"). The maintenance and integrity of the website maintained by IAM is, so far as it relates to the Company, the responsibility of IAM. The work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. The accounts are prepared in accordance with UK legislation, which may differ from legislation in other jurisdictions.

STATEMENT UNDER THE DISCLOSURE & TRANSPARENCY RULES 4.1.12

The directors each confirm to the best of their knowledge that:

(a)   the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

(b)   this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

For and on behalf of the Board

Julia Le Blan

Director

3 April 2013

INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

			2012				2011
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Gains/(losses) on
investments		-	22,153	22,153		-	(82,442)	(82,442)
Income		4,500	-	4,500		5,246	-	5,246
Investment management
fees		(813)	(2,438)	(3,251)		(933)	(2,798)	(3,731)
Other expenses		(722)	-	(722)		(764)	-	(764)
Return on ordinary
activities before
taxation		2,965	19,715	22,680		3,549	(85,240)	(81,691)
Taxation		(328)	-	(328)		(413)	-	(413)
Return on ordinary
activities after
taxation		2,637	19,715	22,352		3,136	(85,240)	(82,104)
Return per ordinary
share		0.93p	6.98p	7.91p		1.01p	(27.40p)	(26.39p)

The total column of the Income Statement is the profit and loss account of the Company. The revenue and capital columns contain supplementary information as recommended by the Association of Investment Companies SORP.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses has not been presented as all gains and losses are recognised in the Income Statement.

BALANCE SHEET

AT 31 DECEMBER 2012

							2012					2011
							£'000					£'000
Fixed assets
								334,680			342,213
Current assets
Income receivable							283					244
Sales - future settlements							236					1,782
Taxation recoverable							170					106
Other debtors							18					32
Cash at bank and in hand							6,873					1,162
							7,580					3,326
Purchases - future settlements							(597)					(359)
Accrued liabilities							(450)					(429)
							(1,047)					(788)
Net current assets							6,533					2,538
Total net assets							341,213					344,751
Capital and reserves: equity
Share capital							32,451					32,451
Share premium account							16,035					16,035
Share purchase reserve							235,598					258,875
Capital reserve							53,248					33,533
Revenue reserve							3,881					3,857
Shareholders' funds							341,213					344,751
Net assets per Ordinary Share							126.02p					116.97p

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

FOR THE YEAR ENDED 31 DECEMBER 2012

			Share	Share
		Share	Premium	Purchase		Capital	Revenue
		Capital	Account	Reserve		Reserve	Reserve	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Opening shareholders' funds
as at 1 January 2012		32,451	16,035	258,875		33,533	3,857	344,751
Share buy backs		-	-	(23,277)		-	-	(23,277)
Dividend paid (May 2012)		-	-	-		-	(2,613)	(2,613)
Profit for the year		-	-	-		19,715	2,637	22,352
Closing shareholders' funds
as at 31 December 2012		32,451	16,035	235,598		53,248	3,881	341,213

FOR THE YEAR ENDED 31 DECEMBER 2011

			Share	Share
		Share	Premium	Purchase		Capital	Revenue
		Capital	Account	Reserve		Reserve	Reserve	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Opening shareholders' funds
as at 1 January 2011		32,451	16,035	283,016		118,773	3,090	453,365
Share buy backs		-	-	(24,141)		-	-	(24,141)
Dividend paid (May 2011)		-	-	-		-	(2,369)	(2,369)
Profit for the year		-	-	-		(85,240)	3,136	(82,104)
Closing shareholders' funds
as at 31 December 2011		32,451	16,035	258,875		33,533	3,857	344,751

CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

		2012		2011
		£'000		£'000
Operating activities
Cash inflow from investment income and bank interest		4,461		5,173
Cash outflow from management and other expenses		(3,930)		(4,529)
Cash inflow from disposal of investments		110,309		117,718
Cash outflow from purchase of investments		(78,731)		(104,924)
Cash outflow from foreign exchange costs		(103)		(49)
Cash outflow from taxation		(405)		(506)
Net cash flow from operating activities		31,601		12,883
Equity dividends paid		(2,613)		(2,369)
Financing
Share buy backs		(23,277)		(24,141)
Net cash flow from financing		(23,277)		(24,141)
Increase/(decrease) in cash		5,711		(13,627)
Opening balance at 1 January		1,162		14,789
Balance at 31 December		6,873		1,162

 

NOTES TO THE ACCOUNTS

1.    ACCOUNTING POLICIES

The accounts have been prepared in accordance with applicable UK accounting standards. The particular accounting policies adopted are described below.

(a)   Basis of Accounting

The accounts are prepared in accordance with UK Generally Accepted Accounting Practice ("UK GAAP") and the Statement of Recommended Practice "Financial statements of investment trust companies and venture capital trusts" ("SORP"), issued by the Association of Investment Companies in January 2009.

(b)   Investments

Securities of companies quoted on regulated stock exchanges have been classified as "fair value through profit or loss" and are initially recognised on the trade date and measured at fair value. Investments are measured at subsequent reporting dates at fair value by reference to their market bid prices. Any unquoted investments are measured at fair value which is determined by the directors in accordance with the International Private Equity and Venture Capital guidelines.

Changes in fair value are included in the Income Statement as a capital item.

Transaction costs incurred on the acquisition and disposal of investments are charged to the Income Statement as a capital item.

(c)   Income from Investments

Investment income from shares is accounted for on the basis of ex-dividend dates. Overseas income is grossed up at the appropriate rate of tax but UK dividend income is not grossed up for tax credits.

Special Dividends are assessed on their individual merits and may be credited to the Income Statement as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Income Statement as a revenue item. Interest receivable is accrued on a time apportionment basis and reflects the effective interest rate.

(d)   Capital Reserves

The Company is precluded by its articles from distributing its capital profit, except by way of redeeming or purchasing its own shares. Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Income Statement and allocated to the capital reserve.

(e)   Investment Management Fees

In accordance with the Company's stated policy and the directors' expectation of the split of future returns, three quarters of investment management fees, net of attributable tax, are charged as a capital item in the Income Statement. If applicable, tax relief in respect of costs allocated to capital is credited to capital via the capital column of the Income Statement on the marginal basis.

(f)    Deferred Taxation

Provision is made for deferred taxation, using the liability method, on all timing differences to the extent that it is probable that a liability will crystallise. Deferred tax is recorded in accordance with FRS19 'Deferred tax'. Deferred tax is provided on all timing differences that have originated but not reversed by the balance sheet date. A deferred tax asset is only recognised to the extent that it is regarded as recoverable.

(g)    Foreign currency translation

All transactions and income in foreign currencies are translated into sterling at the rates of exchange on the dates of such transactions or income recognition. Foreign currency assets and liabilities at the balance sheet date are translated into sterling at the rates of exchange at the balance sheet date. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Income Statement as either a capital or revenue item depending on the nature of the gain or loss.

2.    INVESTMENT COMPANY STATUS

The Company is an investment company within the meaning of Section 833 of the Companies Act 2006.

3.     INCOME

										2012		2011
										£'000		£'000
Income from investments:
Dividends from UK listed investments										813		632
Dividends from overseas listed investments										3,645		4,513
Loan note interest										42		101
Total income										4,500		5,246

4.

FEES AND EXPENSES

			2012				2011
		Revenue	Capital	Total		Revenue	Capital	Total
		£'000	£'000	£'000		£'000	£'000	£'000
Investment management fees		813	2,438	3,251		933	2,798	3,731
Secretary and administrator fees		172	-	172		161	-	161
Custodian's fees		108	-	108		157	-	157
Directors' fees		122	-	122		137	-	137
Directors' other employment costs		13	-	13		18	-	18
Broker retainer		53	-	53		52	-	52
Auditors remuneration
- for audit services		26	-	26		26	-	26
- for taxation		11	-	11		13	-	13
Association of Investment Companies		29	-	29		34	-	34
Registrar's fees		43	-	43		31	-	31
Marketing fees		35	-	35		28	-	28
Public relations fees		9	-	9		25	-	25
Legal fees		-	-	-		18	-	18
Consultant fees		16	-	16		-	-	-
Other expenses		85	-	85		64	-	64
		722	-	722		764	-	764
Total expenses		1,535	2,438	3,973		1,697	2,798	4,495

5.    DIRECTORS' FEES

During the year ended 31 December 2012, the fees payable to the directors were: £30,000 to the Chairman, £24,000 to the Chairman of the Audit Committee and £20,000 to the other directors. There were no other emoluments. Employers' National Insurance or VAT upon the fees is included as appropriate in directors' other employment costs under note 4.

6.    RETURN PER ORDINARY SHARE

Return per share is based on the net gain on ordinary activities after taxation of £22,352,000 comprising a revenue return of £2,637,000 and a capital return of £19,715,000 (2011: loss of £82,104,000 comprising a revenue return of £3,136,000 and a capital loss of £85,240,000) attributable to the weighted average of 282,457,992 (2011: 311,170,086) Ordinary Shares of 10p in issue (excluding Treasury shares) during the year.

7.	DIVIDENDS
		2012		2011
		£'000		£'000
Dividends reflected in the financial statements:
Final dividend paid for the year ended 31 December 2011 of 0.9p (2010: 0.75p)		2,613		2,369
Dividends not reflected in the financial statements:
Recommended ordinary dividend for the year ended 31 December 2012
of 0.9p (2011: 0.9p) per share		2,339		2,614

If approved at the Annual General Meeting, the dividend will be paid on 28 May 2013 to shareholders on the register as at the close of business on 26 April 2013.

8.	NET ASSETS PER ORDINARY SHARE

Net assets per Ordinary Share is based on net assets of £341,213,000 (2011: £344,751,000) divided by 270,770,748 (2011: 294,734,070) Ordinary Shares in issue (excluding shares held in Treasury) at the Balance Sheet date.

9.     RELATED PARTY TRANSACTIONS

Fees payable to the Manager are detailed in note 4; the relevant amount outstanding as an accrual at the year end was £268,375 (2011: £270,462).  The directors' fees are disclosed in note 5.

10.   FINANCIAL INFORMATION

This announcement does not constitute the Company's statutory accounts.  The financial information for 2012 is derived from the statutory accounts for 2012, which will be delivered to the registrar of companies following the Company's Annual General Meeting.  The statutory accounts for 2011 have been delivered to the registrar of companies.  The auditors have reported on the 2012 and 2011 accounts; their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 31 December 2012 was approved on 3 April 2013.  It will be posted to shareholders and will be made available on the Manager's website at www.impaxam.com

The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

This announcement contains regulated information under the Disclosure Rules and Transparency Rules of the FSA.

11.       ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 21 May 2013 at 2:30 p.m. at Norfolk House, 31 St. James's Square, London SW1Y 4JR.

3 April 2013

Secretary and registered office:

Cavendish Administration Limited

145-157 St John Street

London

EC1V 4RU

For further information contact:

Anthony Lee

Cavendish Administration Limited

Tel: [phone]

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FR UOURROBASRAR